Accounting for Q3 GDP Growth

October 30, 2006 – According to Friday’s data release, U.S. real GDP rose at a meager 1.6% annual rate in Q3 after a modest 2.6% gain in Q2 (Chart 1).[1]

For the four quarters through Q3, real GDP growth averaged a 2.9% annual rate – slightly less than the Congressional Budget Office’s estimates of its maximum “sustainable” (or “potential”) rate of growth.[2]

Among the major GDP components (consumption, fixed investment, inventory investment, government spending and net exports), net exports and inventory investment together accounted for 1.5 percentage points (pp) of the total 1 pp slowing in Q3 real GDP growth (Chart 2).

The Q3 improvement in consumption growth was largely concentrated in the auto sector (a notorious source of consumption volatility). However, September’s surge in sales of non-auto consumer goods may have set the stage for a more broadly-based improvement in Q4 consumption growth.

Real government spending growth firmed to a 2% annual rate in Q3 (+0.8% in Q2), raising government’s contribution to real GDP growth by 0.2 pp to 0.4 pp in Q3.